How Trump Accounts Can Help the Next Generation Build Wealth Earlier

Trump Account Basics

• A Trump account is an investment account that you can set up for your child if they are under 18. These accounts share many of their tax attributes with traditional IRAs.
• The yearly maximum contribution is $5,000.
• A one-time deposit of $1,000 from the government is available for kids born between 1/1/2025 and 12/31/2028.

Pros and Cons:

• Benefits:
  • You can’t beat free money.
  • Trump accounts can be converted to a Roth IRA after January 1 of the year the child turns 18.
• Risks & restrictions:
  • Money cannot be removed from the account without penalty before age 59 ½ and is subject to required minimum distributions, as well as the 10-year rule like IRAs.
  • Trump accounts will be restricted to broad-based U.S. index funds only (no foreign stocks, individual stocks, or alternative investments).
  • These are very long-term accounts. Parents may be inclined to contribute to other types of tax-advantaged accounts for specific goals:
    • If parents want to set money aside for education, a 529 plan is recommended instead. 529s grow tax-free and can be used tax-free for K-12 and college education, subject to specific limitations.
    • If parents want their child to be able to access money that was saved for them without penalty before age 59 ½, a taxable custodial account (UTMA or UGMA) is a better option. In an UTMA, for example, each state has determined the age at which the beneficiary can take ownership of the account (generally from 18 – 25). These accounts also have tax benefits during accumulation: $2,700 of qualified dividends and capital gains can be excluded from the parents’ tax return each year.

• How to set up a Trump account:
  • Create or log in to your IRS account and file Form 4547.